Himalaya: Listen. Learn. Grow.

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10 Minutes to E-commerce Success

Grant Segall

10 Minutes to E-commerce Success
9 min2017 DEC 10
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Interview Excerpt Below:

"Michael: There was an interesting study done by Harvard Business School and Bain & Company a number of years ago that shows that an increase in retention of just 5% can have an impact of 25 to 90% increase on profits, and that's because it's just becoming more and more expensive to acquire a customer. It's rare in a lot of cases today with e-commerce that companies are even profitable on the first transaction with a customer. They really have to understand lifetime value and focus on the retention side of their business to be able to be profitable and by focusing on retention and improving their customer lifetime value, their average order value, their conversion rate, all of a sudden it also opens up so many new possibilities in terms of new marketing channels that were previously unaffordable because the cost to acquire that customer exceeded the value of that customer. If you can tip the scale in the other direction, all of a sudden you can aggressively scale your marketing efforts while still maintaining profitability.

Grant: Right.

Michael: I was just going to say we kind of focus on three growth multipliers. A lot of organizations think, "I've got to double my number of customer. I've got to double the number of times customers buy in order to double my business." And that sounds really challenging. But in reality, there's only three ways to grow a business. You either increase the amount people spend with you, so that's average order value or lifetime value. You increase the number of times they purchase, so the frequency of their purchases. Or you increase the number of customers you have.

And if you can increase all three of those by just 30% each, so I just need my customers to purchase 30% more often by recommending more similar products for them to buy. I need them to buy just 30% more from us by cross-selling properly, up-selling properly. Or I need 30% more customers, 30% more traffic, and that can be ... or customers, and that can be done by just making some improvement to the website user experience to improve the conversion rate, as well as sending more traffic. And that's the easy part because you can buy that. If you increase all three of those by 30% over the course of a year, you've grown your business by more than double.

Grant: Wow. So, it's geometric versus arithmetic ... I can't even say the word. Arithmetic growth. Okay. So, if you hit all three levels 30%, you should get ... I think I saw the percentage was 200 and something percent? Is that correct?

Michael: Yup, you can do the math. It's 200 and ... it comes to 220%."

Hope you enjoy the interview!